Crown - Q2 2023
July 25, 2023
Transcript
Operator (participant)
Good morning, welcome to Crown Holdings Q2 2023 Conference Call. Your lines will be placed on a listen-only mode until the Q&A session of today's call. Please be advised that this call is being recorded. I would now like to turn the call over to your host, Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.
Kevin Clothier (SVP and CFO)
Thank you, Jackie, and good morning, everyone. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowncork.com. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause the actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2022 and subsequent filings. Q2 diluted earnings were $1.31 a share, compared to $2.43 in the prior year Q2, which included $0.60 per share net from the sale of our Kiwiplan business.
Adjusted earnings per share were $1.68 per share in the quarter, compared to $2.10 in 2022. Net sales in the quarter were down 11% from the prior year, reflecting higher sales unit volumes in Americas Beverage, offset by the pass-through of approximately $300 million of lower raw material costs, lower unit volumes in most other businesses, and $25 million from the impact of the stronger US dollar. Segment income at $414 million in the quarter, compared to $432 million in the prior year, reflects the benefit from contractual recovery of prior year inflationary cost increases in European Beverage and cost reduction initiatives in Transit Packaging, offset by lower overall net volumes.
Operating cash flow was $293 million for the six months of 2023, compared to $196 million in the prior year. The operating cash flow at this point of the year was the highest in the last 10 years, and the approximate $100 million improvement in operating cash flow reflects our efforts to reduce elevated inventory levels from year-end. The results in the Q2 were as expected. We expect Q3 adjusted EPS to be in the range of $1.70-$1.80 per share. We expect full-year EBITDA to grow between 8%-12%. We expect full-year adjusted EPS to be in the range of $6.10-$6.30 per share, with higher transactional foreign exchange expense and lower equity earnings being the difference from our previous guidance.
Our full-year adjusted earnings include the following, which is in line with our previous guidance: Net interest expense of $400 million in 2023, compared to $270 million in 2022. A $0.40 of incremental non-cash pension and post-retirement costs. Average common shares outstanding to be approximately 120 million, and the full-year tax rate to be between 24% and 25%. Depreciation of approximately $345 million, compared to $301 million in 2022. Non-controlling interest expense to be approximately $135 million, and dividends to non-controlling interests of approximately $120 million. Free cash flow is projected to be $500 million, with capital spending of $900 million.
We expect the majority of our free cash flow to go to debt reduction until we get within our targeted leverage ratio range of 3-3.5x lever. With that, I'll turn the call over to Tim.
Tim Donahue (President and CEO)
Kevin, thank you, good morning to everyone. Trends were similar to the Q1, our prepared remarks will be limited before we open the call to questions. As reflected in last night's earnings release, as Kevin just summarized, Q2 performance was in line with expectations, as beverage in the Americas and Europe and Transit Packaging continued to perform well, offsetting below the line foreign exchange losses and lower equity earnings. Kevin also briefly noted our efforts to reduce raw and finished beverage inventories from year-end levels, the initial results of which are evident on the cash flow statement. As important, inventory carrying risk that we experienced in the H2 of 2022 has been mitigated this year.
In Americas Beverage, unit volume growth was 1.5% in the quarter, with North America up 2.5% and Latin America flat versus the prior year. After a weak April, promotional activity in North America accelerated in May and June, we remain optimistic about the prospects for improved volumes in the back half of the year. While still very, very early in the Q3, volumes to date in July are also strong versus the prior year. Based on customer commentary, we estimate that the North American market was down in the 3%-5% range for both the Q2 and for the six-month period. Accordingly, we revised the volume growth assumption for the full year to approximately 7%, given the market decline in the H1.
Income performance was strong in the quarter, with volume growth and the April 1st PPI increases almost fully offsetting Braunstone Insurance recoveries of $20 million in the 2022 Q2, and the impact of lower activity levels designed to bring down inventory levels. Construction on the Mesquite, Nevada facility is nearing completion, with commercial startup scheduled for late August. Unit volumes in European Beverage declined 5% in the Q2, with weakness in Greece, Italy, and Spain, offsetting growth in France, Turkey, and the U.K. More importantly, we have made significant progress in restoring investment, justifying margins to this segment, which you will continue to see in H2 performance. The construction of the Peterborough plant in the U.K. is nearing completion, with commercial shipments expected in August and October from lines one and two, respectively.
Similar to the Q1, beverage can volumes in Asia Pacific declined double digits. We did see recovery in Cambodia, but Vietnam remains soft. The cumulative effects of inflation, combined with slowing economies, are contributing to lower consumption across Southeast Asia. We do expect H2 income performance to improve over the prior year, albeit against easy comps, and be weighted more towards the Q4. Transit Packaging had another solid quarter, with income up 20% over the prior year, with margins improving across all product lines as reductions to overheads and SKUs, combined with price cost management, have more than offset the impact of lower volumes. With 2023 income performance expected to be the highest ever, the business is well positioned to deliver even more as industrial activity improves in future years.
In summary, performance in the Q2 was on plan, a solid H1, with improvement expected in most businesses in the H2, leading to significant year-over-year improvement in segment income and in EBITDA in the Q3 and Q4. Turning to the balance sheet. At the midpoint of the year, leverage is just under 4x. With improved EBITDA expected in the H2, again, against easy year-over-year comps, we expect to close 2023 leverage well within our stated range of 3-3.5x. Just before we open the call, we ask that you limit yourselves to two questions, so that as many of you as possible will have an opportunity. With that, Jackie, we are now ready to take questions, please.
Operator (participant)
Thank you. We will now begin the question and answer session. For participants, if you would like to ask a question, please press star followed by one. Please limit your phone and record your name slowly and clearly when prompted. Your name is required to introduce your question. To cancel the request, you may press star and then two. Our first question is from George Staphos of Bank of America. Your line is open.
Cashen Keeler (Equity Research Associate)
Hi, good morning. This is actually Cashen sitting in for George. We had conflicting calls this morning. Firstly, I guess, why do you expect the volumes to ultimately recover here? I guess, what are your customers telling you right now? Relatedly, is there anything or an underlying trend that worries them or you about the longer term volume outlook from here?
Tim Donahue (President and CEO)
Well, I mean, what region are you just asking the question about? Then I'll answer the question. I guess you're talking about North America.
Cashen Keeler (Equity Research Associate)
Yeah, I guess, I guess North America would be helpful. Yeah.
Tim Donahue (President and CEO)
Yeah. Well, I mean, you're saying, when's volume going to recover? I think for us, we were up 2.5%. The market was down. Listen, I think April was exceptionally weak. We were down high single digits in April. We were up high single digits in May and June. We're up high single digits already in July. You know, I think the trend here, we have three solid months in a row. I think we're going to continue to see, you know, high single digits for the balance of the year. I think as we've described previously, the market, the customers have a new model right now. The model is, they're going to drive value for their constituents with price over volume, and it seems to be working for them.
We don't control how they manage their business, nor should we really tell them how to manage their business, but they're all doing quite well. Listen, we can't complain. We're up, and we're gonna continue to be up even more in the back half of the year. You know, I'm not sure it's a... I'm not sure being down 3%-5% is the new normal in the business. I think that, I think you're gonna see a flatter overall market in the H2 of the year, and as I said, we'll be up.
Cashen Keeler (Equity Research Associate)
Got it. Thank you for that. Just secondly, could you review just Europe, you know, what your profit target is there for this year and for 2024? Are you guys still on track to get back to 2021 levels, in Europe by the end of 2024?
Tim Donahue (President and CEO)
Yeah. As we said last year, I mean, as we said a few calls ago, we thought we'd be 50% of the way back to 2024 this year. I think what we said on the last call is we'd be 75% of the way back this year. I think if you were to look at 6 months to date here in June 2023, it's probably very close to 2021 levels through 6 months, even with currency a touch weaker than where we were a couple of years ago. We're well on our way back to 2021 levels this year. I think the trend is, and the performance to date, and we feel really good about the H2 of the year. We're, you know, we're not coming off of that estimate.
We're going to be well on our way back, this year, at least 75%. Really, as we sit here today, it's pretty early, but we're pretty confident in getting all the way back, if not even more, next year. Thank you.
Operator (participant)
Thank you. Our next question is from Christopher Parkinson of Mizuho. Your line is open.
Christopher Parkinson (Managing Director)
Can we just dissect the H2 North America, specifically the US volume growth outlook as well? Just, you know, in terms of what you're thinking about, how your outlook changes with promotional activity in CSD, no promotional activity in CSD, as well as the momentum, which I believe you're benefiting from on the energy platform, energy drink platform, as well as some, you know, pretty lucrative ready to drink ramps. Just any color on how the market should be thinking about your growth target would be very, very helpful. Thank you so much.
Tim Donahue (President and CEO)
Yeah. I think we're, you know, the Q1 was a little lighter than we expected, although we didn't have big numbers in the Q1. April was a big disappointment, as I mentioned. As I've said, May and June, really, really quite strong, and July, we're only 20 days into it, but July also strong to date. We're looking at the back half of the year, especially with the new capacity coming up, back half of the year, roughly 10% higher than the back half of last year, which, if you recall, the back half of last year was also not very strong. Again, we've mentioned against easy comps a few times here, and that'll be one reason.
I think the business, well positioned, and I think we are starting to see, more promotional activity, specifically around carbonated soft drinks. The teas, energy drinks, some of the other, I don't want to call them nutraceuticals, but enhanced waters, obviously growing rapidly, but off much smaller bases. The only way you get these volume numbers is through carbonated soft drinks, alcohol to a lesser extent for us, because we're not big in alcohol in the United States, and then sparkling water. We are starting to see those promotions. Perhaps a bit more limited than we'd like to see, but they are making promotions at this point.
Christopher Parkinson (Managing Director)
Got it. Just for my second question, you know, shifting down, hemispheres, could you just talk a little bit more about the Brazilian market? I mean, you know, presumably there's gonna be some easier comps, but at the same time, it still seems like the market's challenging, and there are other dynamics, you know, customer dynamics, which you mentioned on your last call, you know, glass recycling trends, so on and so forth. Can you just give us the, you know, the kind of updated thought process on that market, how you see it evolving in the H2, and probably more importantly, you know, your view of it in the intermediate, to long term as we head into 2024 and onwards? Thank you.
Tim Donahue (President and CEO)
You're welcome. Listen, I think we've said before, we and others view the Brazilian market very favorably over a medium and long term. We're not going to get overly excited about volume performance in a market in any one, three or six-month period. I think if you start looking at periods of time, and whether you want to describe those periods of time of three to five years, any three to five-year period, you lop off and compare, you're going to see significant growth in that market.
Obviously, the market is much larger today than it was in the past, so perhaps the growth percentages are not as large, but the volume growth is still as large or larger and remains significant for a beverage can business in the context of when you need to have capacity to deliver growth of 1 or 2 billion units to the market, how many lines it takes and how much equipment it takes. I do think, again, the back half of the year, comps are a little easier in Brazil as we look at the back half of this year compared to last year. I don't think there's anything we're seeing. I think Brazil was up a little bit in the Q2. We were up tremendously in the Q1, although the Q1 of 2022, again, was very weak.
up tremendously in the Q1, up a little bit about three-quarters of a % here in the Q2, I think we're expecting a fairly strong performance in Q4 as they go into their Carnival season. I think the customer situation we described in Q1, the customer is in the bankruptcy process, for want of a better term, their workout process. They are pulling cans, they're delivering cans. Their volumes are fairly strong right now. They're paying for those cans in a relatively short period of time, I don't think they've ceded any market share in the near term. We're very positive on Brazil right now.
Christopher Parkinson (Managing Director)
Helpful color. Thank you.
Tim Donahue (President and CEO)
Thank you.
Operator (participant)
Thank you. Once again, for participants, if you would like to ask a question, please press star followed by the number 1. Our next question is from Mike Leithead of Barclays. Your line is open.
Mike Leithead (Director of Equity Research)
Great. Thanks. Good morning, guys. First question on Transit Packaging. I think this is one of the best earnings quarters since you've acquired the business. I assume demand isn't that great, I assume it's mostly cost. Can you just give us some sort of thoughts around what you think this business's earnings potential is now, or just kind of how much operating leverage it should have to a volume or economic improvement?
Tim Donahue (President and CEO)
It's a good question. I listen, I think, you know, if we look at volume, you know, volume in the Q2, probably down on the order of 12% or 13%. You got to understand that the business is very diverse. Some of the commodity lines might be down 15%. Tooling was flattish in the quarter, and tooling, you make more money in tooling than you make in the commodity lines. And as I said in the Q1, think about a third of that volume decline being us walking away from customers and or SKUs, which were not very profitable. In fact, the business we walked away from had no impact on profitability. We simplified the business and done some other things around the cost structure by walking away from unprofitable lines.
And as you rightly point out, profit growth in the quarter and year to date, and as expected for the balance of the year, largely around cost, but also around good price cost management on how we're recovering, indexed hot rolled steel and also paper. The team doing a very good job. Now, with respect to the future, what is the leverage of the business as industrial activity returns? We, you know, I'm not going to sit here and make a prediction, but I do think the cost structure of the business and the way the new management team is managing the business, gives us far greater confidence that we do have that leverage.
If we were to think about 5% or 10% volume growth with industrial activity returning, there's no reason to believe that doesn't all fall to the bottom line. I'm not, I'm not prepared to step out and give you a huge number at this point. That's just, I don't think that would be appropriate right now. We agree with you, there is leverage in the business as you look forward.
Mike Leithead (Director of Equity Research)
Fair enough. Second, Tim, just in the release, you talk about using increased cash flow next year to pay down some debt and return shareholders. Could you maybe just give us a bit more of your updated thoughts on where you think leverage ends this year and just where you still want to get to into next year?
Tim Donahue (President and CEO)
I think we'll, as I said, we'll be well within the range. I, you know, if you want a much closer number, I'd say we're. You know, depending on where the euro finishes the year, because we do have euro debt, and that translates the debt a little. You know, think about we'll end this year about 3.2, 3.25x. I think that's we feel pretty safe in saying that as we sit here today. We've always described our range as 3-3.5.
I think we've said it on the last couple of calls, just given where the financing markets are and the cost of debt, we probably would feel more comfortable, and we have heard from some of our larger shareholders who would also feel more comfortable if we were at the lower end of that range or even slightly below the lower end of our range before we begin to return cash, excess cash to shareholders. Having said that, next year, capital expenditures no doubt will be far lower than they are this year, and free cash flow should be higher. We should be able to achieve both of those. That is, bringing the leverage down to three or even slightly below three and contemplating returning the excess to shareholders at that point.
As I said on the last call, just given where borrowing rates are today, the differential in value accretion to shareholders between paying down debt and buying back stock is far narrower today than it has been over the last several years.
Mike Leithead (Director of Equity Research)
Makes sense. Thank you.
Tim Donahue (President and CEO)
Thank you. Jackie, do we have any more questions? Have we lost the operator, Tom? Give us a moment. We'll see if we can find the operator for you.
Operator (participant)
Hello?
Tim Donahue (President and CEO)
Hello?
Operator (participant)
Our next question is from Michael Roxland from Truist Securities. Your line is open.
Michael Roxland (Managing Director of Equity Research)
Thank you, Tim, Kevin, and Tom, for taking my questions. Last call, you said you expected to see some type of recovery in Vietnam in Q2 and then in Q3 as well. I guess, what's been driving the persistent weakness there?
Tim Donahue (President and CEO)
Well, I think the economy has slowed tremendously there. I think, you know, if they had estimated GDP or, let me say it this way: GDP over the last several years has been, you know, running between 7% and 10%, and their estimate this year was for 6% or 7%. They're probably now estimating GDP in Vietnam closer to 1%. A very stretched consumer. The introduction of some very strict drunk driving laws and. I think our customers are trying to understand how they're going to deal with some of the changing dynamics in that marketplace. It'll come back.
It's just, they've got some excess inventory that excess filled inventory that they carried over from, Chinese New Year, that didn't get fully absorbed in the February, March time frame, and they're working through it. Again, it's a, it's a big market, it's a growing market. As I've said, when we talk about Brazil, we don't, we don't tend to get overly excited about, investments we make in a, in a market that we think has great future potential, when there are volume disruptions in any three or six-month period.
Michael Roxland (Managing Director of Equity Research)
Got it. Just quickly, I think last call, you also mentioned you're seeing some customers defer or trying to defer purchase of cans closer to the summer demand to better manage their working capital and to try to minimize their own interest costs. Has there been any improvement on that? That was referencing, obviously, I think, the U.K. Has there been any improvement in that?
Tim Donahue (President and CEO)
I think the reference there was Europe, specifically, or Europe in general, the U.K. specifically, you're right. A little bit of improvement in the U.K., but I think what I would say is that we've been exceptionally focused on improving margins in that region, and we are not chasing volume at lower margins. That, that's probably how I should say it and leave it at that.
Michael Roxland (Managing Director of Equity Research)
Got it. Thanks very much.
Tim Donahue (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question is from Ghansham Panjabi of Baird. Your line is open.
Ghansham Panjabi (Senior Research Analyst)
Good morning, everyone. Thank you, operator.
Tim Donahue (President and CEO)
Hey, Ghansham.
Ghansham Panjabi (Senior Research Analyst)
Good morning, Tim. Could you perhaps, going back to the promotional question in North America, just sort of frame, you know, the level of activity you're seeing now versus, you know, maybe last year and what's typical, just given the warmer months, et cetera, relative to history? Just trying to get a sense as to how sensitive your earnings outlook for the back half of the year would be to the expectation that promotional activity would be higher. You know, what's the best way for us to think about that?
Tim Donahue (President and CEO)
That's a good question. I'll answer the last part of that question last, 'cause I'm going to try to think while I'm talking, which is always dangerous. You know, as we've described before, and Ghansham, you know this very well, you've covered the industry for a very long time. Promotional activity in, specifically in carbonated soft drinks for the last 20 years, centered on the, let's call it, the March to August, September time frame, and discounting ranging from 12-packs being offered at 4 for $10 or 5 for $10. Till last year, they almost didn't promote at all, and they were charging $9 for a 12-pack. In Q3 and Q4 last year, almost no promotions whatsoever.
This year, the promotions we're seeing are buy one, get one on some of the sparkling water brands. Think about sparkling water being offered at $6 a 12-pack, so you're getting 2 for $6, which is like a $3 12-pack. That's not awful. On the carbonated soft drinks, they're still, you know, non-discounted pricing is still running, what, $8.79-$9.29 a 12-pack, depending on where you are, and they're now offering buy two, get one free. That comes out to, what? $6 a 12-pack. Certainly higher than what we've seen historically. How much volume will they drive with that? They're going to drive more volume with that, and then if they don't discount, but that may be their new model.
Their new model might be that their input costs have been elevated, and they're not prepared to sell product at lower value. Their hope is probably that the consumer is going to get used to this, and the consumer will get used to paying $6 a 12-pack, as opposed to $2.50 for a 12-pack as they have in the past. Ultimately, volume will return at these higher price points. So we have to be prepared as well within our system to deal with that. I think that we have seen a lot more consumer activity over the last several months, and we can see that from the amount of cans that our customers are taking. As I said, April was really weak. May was mid-single digits. June was high single digits.
July, as I said, to date, high single digits. We are seeing some activity, and we're seeing customers pull cans. I, you know, to the point of how sensitive our earnings in the back half of the year is, if volume doesn't materialize, if I had to put a band on it? Kevin gave you the range for EBITDA, 8%-12%. I think we're comfortably in that range right now with our forecast. I think if the volume did not materialize, we'd be at the lower end of that range. That's probably the easiest way to say that. That's a pretty big number. Maybe it's too big of a number to come down, but still within the range.
Ghansham Panjabi (Senior Research Analyst)
Okay, perfect. That's helpful. Then if we switch to Europe, I mean, there's a ton of indications that, you know, European consumer spending has weakened sequentially and so on this year's, you know, this year in particular. What's the backdrop in terms of, you know, how your customers are responding to that dynamic? You know, and are they making any adjustments as they look out to the back half of the year? I assume tourism is a positive in Europe this summer, but it looks like, you know, the core consumer there is very, very weak.
Tim Donahue (President and CEO)
Yeah, I, you know, I think there's no doubt Europe's in a recession. You look at some of the Purchasing Managers' Indexes for the various countries, and they're well below 50. They're in the 42-44 range, which are exceptionally low, and these are some of the bigger economies there. As you rightly point out, the core consumer, whether it's the UK, France, exceptionally weak. I don't want to call them poor, but they are stretched, just to make ends meet, basic food supplies, energy. Having said that, you know, the can is still a relatively economical way to deliver beverages or food or any other product, and the business is holding up well. I'm going to assume that the we're down 5% in the quarter.
I'm going to assume the market's not down as much as we are. We operate on the periphery of Europe. That is, we've described to you before, UK, Spain, Italy, Greece, Turkey, couple plants in the middle, we're not so big in the middle, up through Germany and the Scandinavian countries. I would imagine that the market will do better than we did. As I said earlier, we're not chasing volume right now. We're really focused on improving margins. While the consumer is weak, and again, our customers are adjusting their buying patterns to deal with a weaker consumer, I don't think the market's as weak as you might think it is for beverage cans. I just think our strategy might be a little different than others right now, and we're focused on improving margins.
Ghansham Panjabi (Senior Research Analyst)
Got it. Thank you.
Tim Donahue (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question is from Arun Viswanathan of RBC Capital Markets. Your line is open.
Arun Viswanathan (Senior Equity Analyst)
Great, thanks for taking my question. Just back to the volume question in North America. If I heard you correctly, I think you said maybe you're up 2%-3% in the quarter. This year, you're still seeing an overall down market, mainly driven by maybe some weakness on the alcohol side, and some improvements on the CSD and water side. As you look into next year, would you characterize the market still poised to get back to, you know, maybe a 2%-4% growth rate? You know, I know that, you know, you can't really tell the beverage companies what to do, but how do we kind of get back to that level of growth?
Tim Donahue (President and CEO)
I think the again, really, really good question. I think the back half of this year, we probably have, especially in the Q4, an easier comp this year than we had last year. I think if we were down. Remember, these are my estimates. We don't have published data. When I estimated the quarter and six months down 3%-5%, I'm really looking at what our customers have said publicly, and I think there's only one larger CSD company that's reported so far, and they were in the 4%-4.5% decline range, and I'm just going from other anecdotal comments or information that's out there. I do feel kind of confident in that range of decline.
I think we'll see that range of decline narrow in the back half of the year and perhaps be flatter, even slightly up, just because the Q4 numbers last year were not very good. You know, I think last quarter, Arun, we probably tried to guide you from 2%-4%, down to 1%-3% in the future. It doesn't have to be, listen, for a beverage can company to be successful, it doesn't have to be 3%. We can be exceptionally successful managing our business with 1%, 2% growth, especially off the much larger base that we have as an industry today than we've had in the past.
You've got a couple things you always look at, share of stomach, and then when we think about share of stomach, how much of that share of stomach growth is going to come from substrate change from other substrates to the cans? I think we all agree, we all believe, and perhaps some of you agree, that the can is well positioned environmentally from a substrate point of view. The question is, you know, how long before the consumer feels more confident to step back out there and spend a little bit more money on something that's a, you know, a nice treat, a quite refreshing treat? That, some of that has to do with consumer confidence, some of it has to do with our customers' pricing, but the customers clearly have a model now that's very successful for them.
As I said, we don't have to be at 3%-4% growth for, to be successful. We can be exceptionally successful at 1%. There are some market share shifts happening right now. Perhaps we're participating in a little bit of that, not as much as others, but I think responsibly, we're going to have a pretty good year this year, and we're going to have a very good year next year. I, you know, I don't know how else to say it right now. It's a little early to talk about next year, but as we sit here today, we feel pretty good about the next 18 months.
Arun Viswanathan (Senior Equity Analyst)
Okay, thanks for that. Yeah, no, I would agree that there is definitely a robust outlook, even at a, you know, low single-digit growth rate. I guess on that note, right now, you know, you're guiding 8%-12% EBITDA growth for 2023. Is that really the target that you think is possible? I mean, given that you're able to achieve that with, you know, maybe even more muted volume growth than you thought? I know some of it's coming from restructuring at Transit and some other drivers recovering Europe. Should we expect kind of a 8%-12% EBITDA growth rate as your internal targets and what you're trying to achieve, on an annual basis?
Right now, you know, the consensus for next year is about maybe 5% or 6%, which may seem a little conservative. Just want to get your thoughts on that.
Tim Donahue (President and CEO)
Yeah, well, listen, you know, if you were sitting in Kevin Clothier's office, and if you looked at all the papers he's looking at, you'd see a number for EBITDA growth this year that's comfortably within the 8%-12% range. The high end of our initial range was predicated on 10% growth in North American beverage, which revolved around a flat market. We've now revised that to 7%. I would say that, and we've said it already, both Transit and European Beverage are ahead of where we thought they'd be through six months. Pretty confident that they're going to remain ahead of initial plan for the full year, so that'll offset that. We remain comfortably within that 8%-12% range. Again, I think it's a little early to talk about next year.
I don't know if I really want to say that. I don't really want to comment on whether the number is 5% or 6% or 8%-12% next year. It's a little early, but there are some things we're doing really well across most of the businesses. Let's just briefly talk about them, and there's always things that can go the other way. We have reset the cost profile in Transit Packaging. We've reset the way we sell product in Transit Packaging, and that business is exceptionally well positioned from a much lower cost base and a better manufacturing mindset to deal with lower volumes as they're doing this year, and really benefit from a return to better industrial activity in the future. That's number one.
Number two, as we've said, we have reestablished more appropriate margins that justify investment in our European Beverage can business, and we're well on our way to getting back to the target that we've established. Those two businesses there are doing quite well. I think within the Americas Beverage business, whether it's the United States, whether it's Mexico, whether it's Brazil, some of the businesses may move around, but in total, these businesses are well positioned to continue to do well from a cost base and a manufacturing footprint that we believe is well positioned to deliver value to us as we service customers. Asia is a little choppy now. I think we're still confident in the long-term view that Southeast Asia is going to be a growing market.
I think, you know, there's always things that can go wrong. We don't know where currency is going to take us. We don't know if, you know, the economy we're feeling right now is a bubble up and eventually will pop. We don't know that. I don't really want to get into next year. I can tell you that we've made a lot of changes to our industrial infrastructure and our cost profile, which will allow us to weather storms and really benefit as markets settle down and the consumers return to buying more product.
Arun Viswanathan (Senior Equity Analyst)
Thanks.
Operator (participant)
Thank you. Our next question is from Phil Ng of Jefferies. Your line is open.
Tim Donahue (President and CEO)
Phil? All right, Jackie, we seem to have lost Phil for a moment. Do you have another question?
Operator (participant)
All right, thank you. Let me see. Looks like he also queued up. Let me just go ahead and try this other line. Hello, Phil, can you hear us?
Phil Ng (Managing Director)
Yes, I can hear you. Can you hear me?
Tim Donahue (President and CEO)
Yep, we can hear you, Phil. Go ahead. Sorry.
Operator (participant)
Thank you.
Phil Ng (Managing Director)
Hey, Tim, sorry about that. I missed parts of the call. Can you give us a little more color on Europe, how the startups and your capacity coming along? Do you expect some contribution in the back half? The reason why I ask is because your comments earlier sounded a little more cautious, certainly in the macro backdrop. Just want to get a little more flavor in terms of how you're thinking about the back half and with some of that capacity coming on.
Tim Donahue (President and CEO)
Yeah, I, you know, I think in response to Ghansham's question, we talked about volumes in Europe in a, in a fairly weak core consumer. Tourism is up this year in Europe, and potentially, that's offsetting a, the weaker core consumer. As I said, we've been exceptionally focused on driving margin recovery as opposed to chasing every last can, and we'll continue with that strategy. We need to earn appropriate margins before we consider investing further in a market like that. Having said that, the first thing I'd say is the back half of last year, the comps are ridiculously easy. Having said that, we're going to trounce the back half of last year. The Q3, Q4 this year are going to be multiples of Q3, Q4 last year.
Some of that will come from better price cost management. Some of that comes from additional sales out of Italy and Spain as the new capacity comes up, and then we'll work our way through the startup costs in Peterborough as we wind down Braunstone and move it into Peterborough. The back half of this year, in Europe is going to look nothing like last year. It's going to be multiples better than where we were last year.
Phil Ng (Managing Director)
Okay. you feel pretty good about the capacity coming on at a timely backdrop, just given some of the macro challenges in Europe?
Tim Donahue (President and CEO)
Listen, Phil, you know, when you make investments, you know you're making an investment for the long term. If you told me I was going to spend $200 million to build a beverage can plant, and I was really worried about the next three months or six months, you would never do it. These are 50-year investments, and we believe in the product. We believe in the sustainability of the product. We ultimately believe in those countries and those regions we're investing in. Really importantly, we believe in our customers to market their products to consumers and our consumers to want those products, and that's how you make the investment. As I said, I've said a number of times, we're not going to get overly concerned in any three or six-month period. These are long-term investments.
I think we manage our cost profile exceptionally well, that we can overcome short-term disruptions. You know, I'm not going to comment on what I think the consumer is going to do over three or six months, but I will tell you, we feel good about the investments we've made and the future of the business.
Phil Ng (Managing Director)
Gotcha. Makes sense, Tim. From an Asia perspective, you kind of pointed out how, you know, the background's been choppy. The earnings profile has been pretty steady here. Can you give us a little perspective on how you're thinking about the back half and how that progression will look? It sounded like you're expecting some sort of a pickup in the Q4.
Tim Donahue (President and CEO)
Yeah, the only, I'd correct you said the earnings profile has been steady. It has not been steady in Asia. We're down significantly, not only in Q2, but year to date.
Phil Ng (Managing Director)
I'm just talking about sequentially, right? In the back half. The last few quarters, it's been relatively steady from these drop levels. I'm just asking from here, do we see any improvement?
Tim Donahue (President and CEO)
I think Q3 will be similar to last year's Q3, Q4 should be better than last year's Q4. For the full year, we're going to be down a touch. We'll be down in Asia, just only because Q2 came in much weaker than we thought it would. Again, the back half of this year has easier comps than the back half of last year. As I said, Q3, similar to last year, Q4, better than last year.
Phil Ng (Managing Director)
Okay. All right. Thanks a lot. Appreciate the call.
Tim Donahue (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question is from Anthony Pettinari of Citi. Your line is open.
Bryan Burgmeier (Equity Research Analyst)
Good morning. This is actually Bryan Burgmeier sitting in for Anthony. Thanks for taking the question. You know, you're talking about outperforming the US can industry by, like, 10% on volume growth. You know, I think the H1 has been a little bit below the 10% mark, which is maybe a little surprising given the weakness of US beer. You know, do you think once Mesquite is online, that outperformance can expand in the H2? Was the Mesquite startup delayed a little bit? Thanks.
Tim Donahue (President and CEO)
Mesquite has been delayed. We had, we'd initially hoped that we'd be up already now. We had some electrical component panels, et cetera, delays from suppliers and, but we are targeting late August startup, as we, as we get components that we need. It's been a little disappointing. Most of the supply chain for these things have starting to ease, but there still are some issues out there.
I think the growth we see in the back half of the year, some of it around the startup in Mesquite, some of it around the acceleration of Martinsville through its learning curve, but largely around the promotional activity that our customers, that we see our customers having begun to make in May, June, and here in July, and we expect to carry through the end of the Q3 as relates the business that we have under contract and the capacity that we have available to service that.
Bryan Burgmeier (Equity Research Analyst)
Got it. Thanks for the detail. You know, last question for me. You know, we don't talk about non-reportable too much. You know, it was a bit weaker than we expected in the quarter. Can you maybe remind us, you know, why non-reportable is kind of unwinding so much this year? Do you think maybe on an EBIT basis, we start to get back to the 2021 levels? Thanks. I'll turn it over.
Tim Donahue (President and CEO)
The big difference, and you saw it in Q1, was the inventory carrying gains that we took from 2021 into 2022 at much higher tinplate prices. That doesn't recur this year. The other thing that's happening, and we've been pretty open about it, two things: One, aerosol can volumes for the entire North American market, and I'm assuming for Europe, although we're not in Europe any longer. Aerosol cans, exceptionally weak, double digits, and when I say double digits, I mean, well over 10%, volume decline across most aerosol can products, year-over-year, which is a, you know, a preview of the economy.
We historically look back, we always say that as we follow our aerosol can volumes, we can predict what the economy is going to look like over the next six or eight months. Aerosol has been weak now for six or eight months. Secondly, we noted to you at the end of the Q1, we took a headcount reduction charge in our global beverage can making equipment business. That business is now slower than it has been in the last several years as companies digest and start up much of the new capacity they brought up. The equipment supply business is lower than it has been in the past. I don't have 21 in front of me.
I'm not sure how far below 21 we are in the business year to date. I do think that as we look to the back half of this year, in total, will look very similar to the back half of last year in that business.
Bryan Burgmeier (Equity Research Analyst)
Got it. Thanks for all the detail.
Tim Donahue (President and CEO)
You're welcome, Bryan.
Operator (participant)
Thank you. Our next question is from Kyle White of Deutsche Bank. Your line is open.
Kyle White (Director)
Hey, good morning. Thanks for taking the question. In the U.S., now that you have Martinsville ramping up and Mesquite about to start, are you happy with your current footprint in the U.S.? Is there room for improvement here to drive operating rates higher, or are they in a good spot, just given the current demand backdrop?
Tim Donahue (President and CEO)
Yeah, I think. Listen, I think I got to be careful how I say this. It's not my position to talk about what others do. I think we were always, how do I say this? We probably didn't announce as much capacity as all of you wanted us to, two or three years ago. I would say that we were very measured in the capacity and the expansion that we announced and that we affected. We're happy with our footprint, given a more measured approach to capacity expansion over the last couple of years, as opposed to the market in total.
I would say that where we sit today, with our infrastructure in North America and where we see gains, market share gains transpiring over the next 18 months, throughout the industry, that we're satisfied with our footprint, geographically and size-wise. Remember, we're not just all making 12-ounce cans anymore. We all have a variety of sizes and different geographies, and I would say that we're quite satisfied with our platform.
Kyle White (Director)
Got it. That makes sense. Then on Transit, I think you said volumes in the quarter were down 12%-13%, which is, you know, relatively expected given the global backdrop. Just curious how that progressed throughout the quarter. Are you seeing any deceleration in demand as you go into the H2? I know you'll start lapping some easier comps, but just curious how things are progressing going into the back half.
Tim Donahue (President and CEO)
I know exactly where your question is, 'cause I agree with you. I would have expected volumes to decline through the quarter, in the Q2. They didn't. I think our team in Transit is really cautious going into the back half of the year on volume. I think, however, they're going to do better than that. The back half of the year, comps are a little easier. They're not as easy as some of the other businesses. The business is holding up better than your question implies.
The business is holding up better than our fears, it's probably holding up a little better right now through July than even the Transit team had put forward, only because Kevin and I think they've been cautious. They've probably been cautious, rightly so, because we don't really know what's going to happen. The business is holding up better. You know, we've talked about it before. The business is really different than the business was 10 or 15 years ago. It's just a much more diverse business. Much more end markets that they serve, not so dependent upon the metals inventory.
Some of the markets, as we've said before, some of the markets that we serve are certainly cyclical, but the business has been very stable, just given the diversity of its end market supply and customer supply. I understand the point. We understand the point. We as well, keep waiting for even a bigger slowdown, but seems to be holding up very well.
Kyle White (Director)
Got it. Thank you. I'll turn it over.
Tim Donahue (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Gabe Hajde of Wells Fargo Securities. Your line is open.
Gabe Hajde (Senior Analyst)
Tim, Kevin, Tom, good morning.
Tim Donahue (President and CEO)
Morning, Gabe.
Gabe Hajde (Senior Analyst)
Tim, there was a presentation out on the investor part of your website, detailing out quite a bit of the cash flow characteristics of the Transit business, and maybe even I think the North American food can business and talking about some of the dynamics in there. I'm just curious, I know it's tough in this forum to maybe go into a lot of detail, but just maybe the intent of that presentation or what you're trying to let investors understand with that presentation. Then the cash flow characteristics of Transit specifically, is there anything unique about it in terms of, I guess, repatriating that cash or where it generates a lot of its cash flow relative to the rest of your business?
Tim Donahue (President and CEO)
Second part of the question, real easy. Almost no complications whatsoever in repatriating cash and transit. Certainly, far less than in other businesses. We don't have any significant. I don't think we have any minority interest positions in transit, so all the cash is ours. Much of the business is in, you know, greater than 50% of the business in North America is in the United States. Almost all of the businesses in countries where we don't have any restrictions whatsoever. I think that it's probably been a while since we had a fulsome investor presentation. We just thought it would be helpful if we put one together, post it on the website, whether it's used in conferences or it's available to investors to peruse, so be it.
You know, the point about reminding ourselves and everybody else as to the cash flow characteristics of certain businesses, you need cash to run a business. I know everybody got real excited about, "Don't worry about cash flow. You're a growth company over the last several years." Boy, you know, whenever I hear an investor say, "Don't worry about cash flow," it makes me wonder which pension plan is investing their money with that guy, 'cause that's a bad thing. Cash flow is always important. So, whether it's food and aerosol cans or Transit Packaging, these businesses have well-established industrial footprints, which require very little capital to maintain and run and generate the cash that they generate.
Food and aerosol from time to time, especially food, as the business has grown, more from human food consumption to pet food, we've made some investments, for pet food, and we're a very large supplier to the North American pet food market, and we do quite well there, and that's where the investment has been focused in food can. On Transit, you know, we're talking about 1.5% of sales in annual capital, to maintain or marginally grow the business. As we said when we acquired the business several years ago, the capital needs are not very great in that business, that any growth in that business would come from bolt-on acquisitions. So, it's not a capital-intensive business.
I think if you somewhere in the annual report, we probably show long-lived assets for that business. The long-lived assets as a percentage of revenue is very low. It's, it is a business that's more of a service business than our other businesses, but it's still manufacturing at heart. Listen, cash flow is important. We just think it's important that everybody understand where we generate the cash.
Gabe Hajde (Senior Analyst)
Understood. I think it's a good business.
Tim Donahue (President and CEO)
And so like, you know, just-
Gabe Hajde (Senior Analyst)
Second part.
Tim Donahue (President and CEO)
You know, the only thing I'd say, Gabe, is that, we have been growing the beverage can business over the last several years, so the cash flow in that business has been depressed, but obviously, expecting significant step down in capital over the next couple of years in that business. That business is going to return to generating a lot of cash as well.
Gabe Hajde (Senior Analyst)
Okay. Second one, two-part. I apologize. One of the things that I'm sort of scratching my head on a little bit, and we saw this play out obviously over the past, I don't know, pick a number, 24 months, in terms of where inventories were at. From your perspective, is there anything that you can tell us as it relates to your customers' inventory or maybe finished stock inventory? The reason why I'm asking is because, obviously, there's, I don't want to say a disconnect, but a timing difference between sell-in and sell-through, for the beverage can business, specifically talking about North America.
We're looking at, you know, Nielsen data, and I appreciate, again, on the beer side, it's not as big for Crown, but it seemingly, like I said, there's this growing chasm in there. Again, I know there are some share shifts. Anything that you can tell us in terms of where you think inventories might be for the system? The second part is, obviously, with some of the noise going around with North American beer customer, Mexico has been the beneficiary. Can you talk about your ability to participate in that? I think Modelo has been called out as a pretty big winner, but just anything around Mexican beer.
Tim Donahue (President and CEO)
I would say specific to both North America and Europe, I don't believe our customers have any excess inventory on hand. You know, in North America, they almost carry no inventory. We deliver just in time. The cans roll in 15-minute intervals. They go into the can washer, they fill them, and then they ship them out. The customers don't carry a lot of inventory. We have seen customer inventory in Southeast Asia, post-Chinese New Year, and even in Brazil, a little bit post-Carnival, being a little higher than we've typically seen, and that might have led to lower demand from our customers as they work down their inventories in those regions. As it relates to North America, there's no inventory issue at our customer level.
On the beer situation, we do have a very big or a very large Mexican beverage can business. We service a wide variety of customers, including beer. I would suggest that the beer customer that you're describing that ships into the United States, is not one of our larger customers. It is a larger customer for somebody else.
Gabe Hajde (Senior Analyst)
Got it. Thank you. Good luck.
Tim Donahue (President and CEO)
Thank you.
Operator (participant)
Thank you, speakers. At this time, we don't have any questions on queue.
Tim Donahue (President and CEO)
Okay. Jackie, thank you very much. I guess that concludes the call today. Thank all of you for joining us, and we'll look forward to speaking with you again in October. Bye now.
Operator (participant)
Thank you, everyone. That concludes today's call. Thank you for joining.